What is Straight Through Processing - STP
Straight-through processing is a term coined by the financial services industry to describe a system in which a transaction can occur electronically without any human intervention. This increased level of automation was enabled by the widespread proliferation of high-speed Internet access, and the increased processing power of computers, starting in the 1990s and early 2000s.
BREAKING DOWN Straight Through Processing - STP
Straight-through processing has come to refer to efforts across a wide number of industries to automate the processing of transactions and allow businesses to authenticate their customers on the web, sell those customers a product, initiate delivery of the product, and offer other products and services to the customer automatically, through one point of sale. The adoption of straight-through processing allows companies increase profitability by using automation technology to engage in business analytics, and to market new products and services, and it also allows them to grow their total sales by improving the customers’ experiences by removing friction from each transaction.
An example of a company that has implemented straight-through processing is Amazon. The online retailer has remained focused throughout its existence on removing any obstacles to a customer purchasing something on its website, and has made great use of automation technology and sophisticated algorithms to serve customer recommendations that drive revenue.
Straight-through Processing and the Financial Services Industry
The concept of straight-through processing was invented by the financial services industry, and there are many reasons why it’s a concept particularly suited for Wall Street. Unlike industries like manufacturing or retail, the investment industry doesn’t deal in physical products that must be warehoused, shipped over great distances or are subject to chance of physical damage. What Wall Street sells, namely ownership rights and debt obligations, can be easily translated into the language of computers. That’s why investors have been able to transact through computers and computer networks since at least the 1970s, whereas e-commerce was did not become widespread until the 1990s.
In the world of financial services, straight-through processing involves several features, including partial automation of back-office functions, like accounting and auditing, as well as automatic payment processing, verification, and customer authentication. Straight through processing has eliminated the need in some markets for phone communication between traders and brokers\, and has also reduced reliance on fax machines for sending additional information needed to complete transactions.
Straight-through processing is sometimes contrasted with a system known as T+3, which institutes a settlement cycle of three days, stands for “trade date plus three days.” Under such a system, a seller of a security must deliver the paper certificate within three business days, while the buyer must deliver payment within three days.